Inheritance Tax (IHT) used to be something only the wealthy had to worry about. Not anymore.
Thanks to rising house prices, frozen tax thresholds, and new rules around pensions, more and more ordinary families are getting caught in the IHT trap. And HMRC is cashing in.
In 2023/24, the government collected a record-breaking £7.5 billion in inheritance tax — and forecasts show that figure climbing to £9.8 billion by 2028/29 and then £13.9 billion in 2029/30.
That’s wealth that could have stayed within families — with the right planning.
How Does Inheritance Tax Work?
Inheritance Tax is currently charged at 40% on estates worth more than £325,000 (the “nil-rate band”).
If you pass your home to children or grandchildren, you may benefit from an additional Residence Nil Rate Band (RNRB) of up to £175,000. But beware:
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Estates over £2 million begin to lose this valuable allowance.
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These thresholds have been frozen until at least April 2029, meaning more families will fall into the IHT bracket as asset values continue to rise.
Big Changes Ahead: Pensions Are No Longer IHT-Free
Traditionally, pensions offered a fantastic way to pass on wealth outside your estate and free from inheritance tax. That’s changing.
From April 2027:
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Pension death benefits will be included in your estate for IHT purposes.
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Pension providers will be responsible for reporting and paying IHT directly to HMRC.
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Beneficiaries may also face Income Tax when drawing down inherited pension funds.
In short: if you were counting on your pension to sidestep IHT — it’s time to revisit your plan.
Strategies to Minimise Inheritance Tax
While these changes might seem daunting, there are still many legitimate and powerful strategies to reduce your family’s IHT liability — especially if you act early.
Lifetime Gifting
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Gifts made during your lifetime are exempt from IHT if you survive 7 years.
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Regular gifts from income (e.g., excess pension income) can be made immediately IHT-free if they don’t affect your standard of living.
Use Your Exemptions
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£3,000 annual gift exemption per person (can carry forward one year).
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Small gifts exemption of £250 per recipient, per year.
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Wedding gifts and charitable donations may also qualify for reliefs.
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Leave 10% of your estate to charity, and your IHT rate drops from 40% to 36%.
Trusts
Trusts can be an incredibly useful tool for IHT mitigation. They allow you to move assets out of your estate while still retaining an element of control or direction.
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Flexible Reversionary Trusts, Discounted Gift Trusts, and Loan Trusts are commonly used by planners to:
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Reduce the taxable value of an estate.
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Provide controlled access to income.
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Ensure money is passed down responsibly.
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Trust planning needs to be done carefully and in line with your broader financial objectives — but it’s one of the smartest ways to protect intergenerational wealth.
Investment Bonds
Investment bonds, especially when held within trusts, can play a strategic role in estate planning:
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Bonds allow for tax-deferred growth, and up to 5% of the original investment can be withdrawn each year without immediate tax.
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When written in trust, they can:
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Be held outside your estate for IHT purposes.
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Offer flexible access to income for trustees.
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Provide greater control over how and when beneficiaries receive funds.
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Used correctly, bonds in trust provide an efficient and relatively low-maintenance vehicle for IHT mitigation and wealth preservation.
Business and Agricultural Relief
If you own a qualifying business or agricultural property, you may benefit from up to 100% IHT relief — but you must meet specific conditions. Timing and structure are critical here.
Insurance
Some families opt for life insurance policies written in trust to cover the estimated IHT bill. This ensures the tax can be paid without needing to sell assets or property — and the payout falls outside the taxable estate.
Don’t Wait Until It’s Too Late
The cost of delay can be high. Without a plan, you risk:
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Losing access to the Residence Nil Rate Band (potentially worth £350,000 for couples).
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Exposing your family to unexpected tax bills.
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Watching hard-earned wealth be drained away by HMRC.
Let’s Build a Plan That Works for You
At Ideal Financial Management, we specialise in building personalised, tax-efficient estate plans. Our expert advice ensures your wealth is protected, your wishes are honoured, and your family benefits — not the taxman.
We’ll help you:
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Make the most of exemptions, allowances, and reliefs.
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Set up appropriate trust structures and investment vehicles.
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Keep your plan up to date as legislation evolves.
The April 2027 Pension Rule Change is Coming
This change will catch many people off guard. Make sure you’re not one of them.
Contact us today to discuss your options and start your Inheritance Tax planning journey.
Your future self — and your family — will thank you.
